Equitable Mortgage Vs. Registered Mortgage - Meaning, Difference, & Process

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When you pledge your property to avail a loan against it, it is called a mortgage. In a mortgage, the lenders lend you money and retain the original documents of the property until you repay the entire loan amount. If you default on the loan repayment, the lender has the right to auction off your property and recover the loan amount. Therefore, typically, secured loans or mortgages have long repayment tenure and low-interest rates. There are two types of mortgages - Equitable mortgage and Registered mortgage.

What Is the Meaning of Equitable Mortgage?

‘Equitable’ is derived from the word equity, which means the interest of justice. This mortgage is a simple contract between a mortgagor and mortgagee (here, lender and borrower). In this mortgage type, you borrow money from the lender and furnish the documents of the property to them. The ownership documents remain with the lender until you repay the loan. These mortgages are usually for a time frame of 15-20 years, and during this tenure, your property documents remain with the lender.

How does Equitable Mortgage Work?

We have already covered the equitable mortgage meaning above. Let us understand how it works.

The borrower and the lender enter into an agreement where the borrower acknowledges that they owe a debt to the lender. The borrower transfers an equitable interest in the property to the lender. This is done to secure the debt and it essentially means that the lender has a claim on the property. However legal title to the property remains with the borrower. While an equitable mortgage doesn't require the same formalities as a registered mortgage, one must document the agreement in writing and have it witnessed or authorised. This helps to protect the interests of both parties. If somehow the borrower fails to repay the debt as agreed, then the lender can seek remedies in equity.

Importance Of Understanding Equitable Mortgages In Real Estate Transactions

Equitable mortgages are an alternative to registered mortgages in real estate transactions.

This type of mortgage is created by depositing the property's title deed with the lender as security for the loan amount.
No legal procedure or registration is needed for an equitable mortgage, making it less expensive and requiring less documentation.
The borrower benefits from the easy return of the title deed after loan repayment.
Understanding the process and implications of an equitable mortgage before entering into a real estate transaction is crucial.

What Is a Registered Mortgage?

In a registered mortgage a third party is involved apart from you and the lender. In this mortgage type, you are required to voluntarily give the full right of the property to the lender. The lender has the ownership of your property, and they can use or dispose of the property in case of default. In this mortgage, you need to record the property mortgage at the sub-registrar office. When you repay the loan in full, the ownership of the property is transferred back to you. So, basically when a person does home loan mortgage registration, their mortgage can be called a registered mortgage.

How does Registered Mortgage Work?

Now that you know the meaning of a registered mortgage, let’s learn how it works.

A formal loan agreement is made by the borrower and the lender. It outlines the terms and conditions of the loan. This includes the amount borrowed, interest rate, repayment schedule, and any other relevant terms. A legal document that transfers an interest in the property to the lender as security for the loan is called a mortgage deed. This is created by the borrower to secure the loan. This interest is typically a legal charge on the property. Next comes the registration process. The mortgage deed along with any necessary supporting documents is submitted to a government authority for registration (like CERSAI). After registration, the mortgage becomes a matter of public record. Anyone can access this information on property encumbrances, including the mortgage. Registering provides lenders with legal rights and protections.

Difference Between Equitable Mortgage vs Registered Mortgage

Basis	Equitable mortgage	Registered mortgage
Registration	Equitable mortgages are not registered, and the two parties are bound only by the agreement	A registered mortgage is registered with the sub-registrar and has legal provisions
Process Requirement	Borrowers need to pay an equitable mortgage stamp duty	You need to approach the sub-registrar for the mortgage and pay the stamp duty required. It may be higher in comparison to equitable mortgages.
Cost	Equitable mortgage charges are very low. It is less time-consuming and cheaper.	It is expensive and more time-consuming.
Risk	It is a riskier form of mortgage bound only by the agreement. The borrower can sell the property to a third party without the knowledge of the lender.	It provides security to both parties. The property mortgaged is registered, so the borrower cannot dispose of the property without repaying the loan amount.
Stamp duty	You need to pay a stamp duty of 0.1% to 0.2% of the home value.	You would have to pay a stamp duty of 5 % of the home value.

Understanding the difference between the two would help you choose the suitable mortgage type per your requirements. Usually, banks prefer a registered mortgage as it is safe and risk-free. Keep these details in mind while applying for a mortgage loan for a hassle-free loan availing process.

Key Factors to Look For When Choosing Between Equitable and Registered Mortgage

Consider the following factors before choosing between equity and registered mortgage:

Equitable mortgage:

Privacy: Equitable mortgages are registered with government authorities. This provides privacy for both the borrower and the lender.
Flexibility: There is flexibility when it comes to the terms and conditions of the agreement. The agreement is based on mutual trust and understanding so it is flexible.
Risk: The borrower may have less legal protection and the lenders also have fewer remedies in case of default.

Registered Mortgage:

Legal protection: registered mortgages provide clear legal protection and remedies to both borrowers and lenders. This is because the mortgage is registered and governed by established laws and regulations.
Transparency: Since the mortgage is a matter of public record, it ensures transparency and accountability for all parties involved.
Risk: The risk is less in registered mortgages. Hence it is suitable for larger loans and commercial transactions where legal enforceability is crucial. It provides security to both borrowers and lenders.

Advantages & Disadvantages of Equitable Mortgage

Advantages	Disadvantages
Provides privacy for both borrower and lender.	Limited legal protection for both parties.
More flexible terms and less formal.	Higher risk due to lack of legal recourse.
Lower administrative costs.	Lack of transparency for outsiders.
Do not require the formalities of registration and legal documentation.	Establishing the existence and terms of an equitable mortgage can sometimes be challenging.

Advantages & Disadvantages of Registered Mortgage

Advantages	Disadvantages
Provides strong legal protection for both borrowers and lenders.	Borrowers may face stricter legal consequences in case of default.
Lenders may offer lower interest rates due to added security.	Borrowers may incur higher upfront costs due to legal and registration fees.
Creates transparency by making mortgage details publicly accessible.	Lack of privacy for borrowers and lenders, as the information is public.
Facilitates property sales and transfers when the mortgage is cleared.	Can complicate property transactions if the mortgage is not discharged.
Follows standardised legal procedures, reducing ambiguity.	May involve more paperwork and formalities compared to equitable mortgages.
Suitable for larger loans or commercial deals where legal enforceability is crucial.	Borrowers may feel less flexibility in negotiating terms.

Frequently Asked Questions

1.) How Home Loans are Tied to Mortgage Types

Home loans in India are often tied to the type of mortgage used. Registered mortgages offer more legal protection, allowing lenders to offer lower interest rates, while equitable mortgages may have higher rates due to increased risk.

2.) Types of Properties Eligible for Equitable Mortgages

Equitable mortgages in India can be placed on various types of properties, including residential, commercial, and vacant land. However, eligibility may depend on the lender's policies and the property's market value.

3.) Which is the Ideal Mortage in India?

Well, the ideal mortgage in India depends on the person's circumstances. An ideal mortgage is subjective and differs for everyone.

4.) What are the Charges Associated with Equitable Mortgages?

Charges may include equitable mortgage stamp duty, notary fees, and documentation costs. These charges can vary depending on the state and local regulations.

5.) What is the validity period of an equitable mortgage?

The validity period of an equitable mortgage is typically 12 years from the date of creation. After this period, it may need to be renewed.

Conclusion

While equitable mortgage vs. registered mortgage involves pledging a property to avail of a loan, they differ in registration, legal provisions, process requirements, cost, and risk. It is essential to understand the difference between a simple mortgage and an equitable mortgage and opt for the suitable mortgage type as per your requirements. For a hassle-free loan availing process, we recommend keeping these details in mind while applying for mortgage loan. We hope you fully understand the simple and registered mortgage meaning to make a wise decision.